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It’s hard to see how the economy can recover when, slow as it is, the breaks are applied even before it regains any momentum.

The Australian Government is scrambling to keep itself from falling into a spiral of debt by raising taxes, in particular the tax on petrol which is already prohibitive (38.1 cents/litre), although less, as a proportion, than it was when the rate was frozen in 2001. In an article published in the Brisbane Times, economists, conservationists and politicians are presented as having one voice that fuel tax needs to be indexed, not charged as a fixed amount per litre. Yet when the game plays in favour of the Government, such as with income tax, indexation never seems to catch on, decade after decade.

Tax crusades of all kinds are to be expected in the next budget and over the next few political terms. Superannuation, already disemboweled during the most recent stock market crash, will likely be hit again by raised taxes. The reasoning for making tax changes is interesting, since it is implied that the reduced tax on superannuation is undeserved:

The existing contribution limits are tipped to halve, with any money above these levels to be taxed at penalty rates instead of the 15 per cent discounted, or concessional, rate that applies now.

Such a move would affect only about 2 per cent of people and help remove a major imbalance that benefits high income earners, according to independent research house SuperRatings.

At the beginning of the superannuation push (by governments), the threat was that the aged pension would be eliminated. In order to avoid destitution and a life worse than death, the public was urged contribute maximally into superannuation, instead of paying off a debt or putting it in the bank. In retrospect, shoving the money under the mattress would have been wiser, irrespective of any tax incentives. And now, governments seem to have forgotten their spiel that superannuation will reduce the government’s pension burden by letting people fund their own retirements. They will put a stop to that by taxing the already shrunken superannuation savings. The government has no problem with double-dipping into the public pocket, and although initial tax increases on superannuation will target the “rich”, the coming inflationary spiral will quickly push the middle classes into the higher tax bracket. That wasn’t what the public was thinking when the government proposed that superannuation would help make pensions payable.

Anything that moves, or doesn’t move, is likely to get a tax increase. Beer and cigarettes are popular favourites, but even charities will not escape the tax man. The government, of course, is claiming that it is acting in the national interest, just as it did when it gave us all our cash handouts, first home buyers grants, baby bonuses, and other bribes and inducements to do what is not in our interest.

If the government was genuine about economic stimulus, rather than merely generating good quarterly retail figures, it would have made its spending conditional, invested in Australian run initiatives, directed towards activities which, in the end, make society more efficient. There are innumerable possibilities. A heavy subsidy (eg: 100%) on public transport, for example, would have encouraged people to go out, shop, socialize and move about the cities whilst simultaneously easing city traffic, smog and carbon dioxide production. The abolition of university fees would have made the financial futures of the young more certain, bringing about a return to fairness in academia and going some way towards reducing elitism. The extension of Medicare to dental services would have saved money in the long run through reduced hospitalizations from disease arising from poor dentition.

With superannuation, it tricked the public into putting all its money into a single investment vehicle; one which failed. It will now tax the remaining blood out of it. With the First Home Buyers’ Grant, the government has tricked people on low incomes or unsteady incomes to enter into unreasonably large mortgages on overpriced houses. Most of that money will return as taxes, but the people will be left in an ever growing rut of debt. The stimulus payments, on the other hand, weren’t a trick; they were just plain stupid.

The government, more than ever before, is not to be trusted. Playing on fear and greed, it herds its constituents into positions of vulnerability and then taxes them until they bleed.

Health alerts have spread through Australia’s government institutions, in particular hospitals, advising of the risk of Swine Flu. It affects young adults, has a high probability of mortality, and is described by the World Health Organization as an emergency having the potential to reach pandemic proportions rapidly. In Mexico, it is said that over 1000 people at the present time have been infected, of which over 60 (27/4/09 – now 80) have died – a fatality rate of (roughly) 6%. Schools, museums and other public gathering places have been closed to try to prevent further spread. The virus has already spread to California, Texas, with at least seven confirmed infections.

The number of fatalities outside of Mexico currently equals 1, a 23 month old in the US.

Specifically, the virus belongs to the H1N1 group of influenza A viruses. This particular strain is novel; its discovery occurred as recently as 2 days ago (23/4/2009). Its genetic profile is such that the conventional flu vaccines offered to hospital workers and the community are unlikely to offer protection. It is said to be sensitive to the drugs zanamivir (Relenza, owned by GSK) and oseltamivir (Tamiflu, owned by Roche). Supplies of this drug in Australia are probably adequate to manage the early stages of an outbreak, but clearly, in developing countries, this is definitely not the case.

The lethality of this infection is similar to that during the Spanish Flu pandemic (1918-1920) which had a mortality rate of 2 to 20%. It too was a subtype of the H1N1 influenza A virus.

One of the most common questions being asked by the public are about the presentation of the illness and how to avoid getting infected. In general, the symptoms and signs of the infection are nothing out of the ordinary. They include:

All the usual flu symptoms, such as fever, lethargy, lack of appetite and coughing (respiratory tract), sometimes runny nose and sore throat.

Other body systems can also be involved, such the gut (nausea and vomiting, diarrhoea)

These are the same symptoms that can happen in pneumonia, the common cold, even urinary tract infection in some people. This is not very helpful, because it can now be expected that, very often, a person with even the slightest runny nose, or food poisoning or whatever, will think he or she has swine flu. The rule of thumb is, if you are more sick than your usual, see a doctor. If you have a reason to avoid being sick at all (such as being on drugs which decrease your immunity), see a doctor.

As for avoiding infection, well there are more myths than facts around. If you managed to avoid catching a cold over the last five years, then you are doing something right, but the fact is that most people are forced to go to public places, shop, go to school, work and so forth. Like every virus, the flu will have an incubation period (even if it’s just a couple of days) where a person is infected, is infectious, but is feeling perfectly well.

Of the few things that have been proven to work, careful and consistent hand washing after human contact, isolation of the sick, vaccines (by no means a panacea), and being otherwise healthy, well slept and well fed, are the best thing. If you are worried about dying, but smoke, drink too much, go to fast food restaurants and drive too fast, then fix those before you worry about the flu!

The coming weeks will reveal whether this virus manages to spread faster than the ability of researchers to design a vaccine in order to produce herd immunity, especially in major cities. In the meantime, governments around the world will be placing their institutions on alert for symptoms and putting in place treatment protocols and the like. There is no doubt that everybody will do whatever is feasible to curtail the spread of this organism.

The flu virus mutates promiscuously, and this strain is no exception: Officials said that, in addition to genetic material associated with North American swine flu, the strain has gene segments associated with European and Asian swine flu, North American avian flu and human flu.

Most surgical masks do not offer protection.

Three strains in one! It’s not unreasonable to ask questions about just how probable (or improbable) such a mutation is in the wild. In laboratories, however, mixtures of multiple viral RNA fragments can be combined to yield a successful result. Biological weapons research has not ceased either, but has continued quietly out of the public limelight. We can expect to hear of many different explanations about this particular virus.

It is useful to keep an open mind about the outbreak. It is currently assumed that the virus is a natural occurrence. Indeed, there have been warnings about this for years now. The thing is, though, that warnings do not change the probabilities. Many people are rightly wondering whether the virus was engineered in a laboratory or is merely a coincidental mutation among a herd of pigs. If it is a man-made virus, then its release into the wild could represent the greatest act of mass murder in history. This question, therefore, is not to be shirked at and must be answered.

The influenza viruses, however, are known for their unstable genetics and rapid rate of mutation, hence the tendency for new strains to emerge each year, and even during a seasonal outbreak. It would be interesting to tease out the probabilities that this particular strain would have spontaneously emerged. Also, we can expect this outbreak, if it does spread as predicted, to rapidly mutate into multiple strains, making containment even more difficult.

On the topic of containment, it needs to be said that ordinary surgical masks do little to prevent the spread of influenza. It’s all just for show. During the first few minutes of wearing a surgical mask, the device performs to manufacturer specifications, but after that the mask is damp and warm and cannot offer the same protection. A paper mask cannot form a tight seal around the face so that air is always entrained on inhalation. If you are sneezed on, or are in contact with an infected person, you are going to get infected. Mask wearing is by and large a waste of time – as good as placebo. But people will do it anyway, of course.

Whatever its origins, this virus is already showing an ability to spread extremely rapidly. Within days we will know whether this is indeed the flu pandemic of the century.

Embarking on its biggest military spending spree since WWII, Australia is undergoing a significant shift in approach to international relations. It is a telling sign that the global economic crisis is about much more than money.

An article on news.com.au entitled “Biggest Military Boost since WWII” reports Kevin Rudd’s announcement of massive military spending on the Australian Defense Force, which is to be insulated from any other budget cuts that may occur as a result of the global financial crisis:

“Nevertheless the Government will not resile even in the difficult times from the requirement for long-term coherence of our defence planning for the long-term security of our nation. This is core business for government.

“That is why we have forged ahead in our preparation of the defence white paper because national security needs do not disappear because of the global recession. If anything, those needs become more acute.”

There are several important things to make note of in light of this major development in international affairs.

Firstly, this is a militaristic and highly provocative move by Australia which will be interpreted exactly as it is by its neighbors. And coming from a supposedly left-leaning government, proves that there is absolutely no meaning in what political wrapper might exist over a ruling party, in this case Labor. Very little changes from government to government, even in domestic matters. Political party faithful of course don’t believe this (it’s not in their interests), but it’s nonetheless true.

Secondly, it confirms our suspicions that the economic crisis is indeed a prelude to something much more real and physical. The impending collapse of the US currency will leave many angry customers (nations) left with what has been termed ‘toilet paper’ which they obtained in exchange for real, valuable and tangible goods. There will be a settling of scores. The question begs, however, whether Australia’s surge to build its defenses will be too little, too late. It certainly appears that in the coming years America’s dominance as a military power will be coming under question, particularly with the rise of China’s military capability.

Thirdly, it represents an alternative path to ‘stimulate’ Australia’s economy. What better way to use the masses of young, healthy, unemployed males than to shove them in the armed forces, where they can be kept off the streets, and put to work.

Fourthly, it’s a development that may go some way to confirming a couple of old “conspiracy theories” which predict that global war might well reoccur, and not by mistake. On planned population reduction, for example:

Either they [governments] do it our way, through nice clean methods or they will get the kind of mess that we have in El Salvador, or in Iran, or in Beirut. Population is a political problem. Once population is out of control it requires authoritarian government, even fascism, to reduce it “The professionals aren’t interested in lowering population for humanitarian reasons. That sounds nice. We look at resources and environmental constraints. We look at our strategic needs, and we say that this country must lower its population-or else we will have trouble. – Thomas Ferguson, Latin American case officer for the State Department’s Office of Population Affairs (OPA)

Governments very rarely make frank statements about their real regional aims. Much of a nation’s regional strategy is a secret because no member of the public (or neighboring countries) would find it particularly palatable. People tend to make good guesses though, based on undeniable factual material such as geography, energy resources and cultural and political allegiances. No nation was without blame in World War II. Like any war, it was about resources and trade routes. The next war, if it occurs, will be about the same things. It will be global, it will affect everyone, since it will be a war whose ultimate aim is to dominate everything, once and for all.

Where will the lightning strike?

As predicted, the world economic storm has become more than a mere shadow over Australia’s immediate future, as ABC News (Australia) reports:

The International Monetary Fund has drastically downgraded its outlook for the Australian economy, forecasting it will contract by 1.4 per cent this year before growing slightly again next year.

Their estimations are that the US will contract by 4% in 2009, making Australia look good in comparison, but Australia’s situation is not necessarily better. Everything just seems to happen later here.

Tax revenue is falling like a stone, making the indiscriminate Rudd cash stimuli (nicknamed the RuddBank) impossible to fund on anything other than debt. From a Chinese source, as it happens. The problem is that Australia is receiving paper money, but that China will want something more substantial, more tangible in return, such as assets, foreign policy decisions, even domestic policy changes. Such is our patriotism that the idea of a kind of one-child policy for Australia is actually being discussed. Freudian slip, perhaps?

It’s also becoming clearer by the day that the housing market is being propped up by artificial interventions such as the First Homebuyer’s Grant and mortgage relief programs for the unemployed, which are around the corner. The sub-prime mortgages in the US were simply a way of propping up (and worsening) a housing bubble by making the purchase of housing on debt an irresistible prospect for the soon-to-be unemployed. The current Australian Government’s fiddling with the housing market will have the same effect. Sure, it is not causing rises in housing prices, but it is hiding the true bottom of the market, which is falling away silently in the background.

The one big thing missing in Australia so far is to wake up one morning and find that one of the giants of the economic landscape turned out to be a huge fraud, wiping out thousands of investors in one fell swoop. The ANZ Bank was looking like a possibility in this regard late last year. It was said to have the largest international exposure to the economic downturn, when compared with the other three large banks. However, recent reports suggest that the opposite might be true, that the Big Four have come out stronger than ever before, as they buy up assets around the place which have been put up for sale by other struggling banks, including the smaller ones in Australia. There are a lot of unknowns in all of this – many balls in the air, as it were. It smells like the banks are still quite vulnerable, however, with the Government being ever so eager to prop them up, especially in the real estate sector.

As was stated in previous posts, we are experiencing the calm before the storm in Australia. News abounds on just how bad the USA is faring, with ‘tea parties’ all over the place and the possibility of dissolution of the Union getting a mention here and there on the mainstream media. A lot of that is staged and therefore meaningless, but a groundswell of genuine discontent is building rapidly. Yet still the politicians and talking heads pretend that Australia doesn’t have a problem, that the nation will pull through with a few little bumps but not much else. This view is ridiculously optimistic.

Conflicting Interests

The differences in economic opinion between, for example, the IMF and politicians, occur because of differences in points of view. That is, each source has a different aim and will tend to report the things it wants to believe. The IMF stands to gain from the global recession, whereas politicians stand to lose. Therefore, the IMF will choose to ignore the stock market rally in the US and the politicians will try to take credit for it, even though the entire thing way out of their control at this point.

This illustrates one of the difficulties in judging the economic situation in Australia. The useful data is outdated and current information comes from biased sources.

Our prime minister is a bit like a real estate salesman, desperately trying to talk up a barren, rocky wasteland as a development opportunity of a lifetime, with the building materials (rocks) all ready for your dream home, no neighbors or traffic noise (middle of nowhere), and so on. Sure, it’s a rocky wasteland, he says (so you can’t quote him later that he lied) but imagine the possibilities! It’s no surprise that the only customers coming to help Rudd are those who don’t want to be part of the neighborhood (we think) but plan to come in, take the rocks away, and leave the sand behind. A real estate agent does not care what the place gets used for as long as it sells. Neither do politicians, as a general rule.

The IMF, on the other hand, is a bank – hard nosed and greedy. Banks, too, have their sales pitch of walking hand in hand with little battlers, helping them realize their dreams, but in the end they are still banks, out to make money for their shareholders. And when there is more money than can be counted, that money turns to power, influence and control. The IMF has designs to manage the world on every level, through de facto ownership of key infrastructure and government assets. The International Monetary Fund is therefore not an objective source of world economic opinion. It has a vested interest in things being really really bad, as is shown by an eagerness to unify world currencies (under its own banner) and to become an issuer of money to the developed world as well as the developing world. The IMF stands to gain a lot from economic badness. It is also a private organization, let’s not forget, and is unlikely to descend upon the chaotic world as a knight in shining armor, eager to spread democracy and fairness.

Which weatherman do we believe?

We can safely say that neither is to be believed to any great extent. The nose knows.

If we ignore the media and look at what is going on in the street, we can already see people getting irate, complaining of having too little money and feeling some economic strain. People are spending more of their money on groceries and less of it on non edible stuff. This is because the price of groceries is rising, leaving less money for toys, bikes and other discretionary items. The shift in spending habits precedes the eventual fall in total spending, which will come as a result of unemployment and the drying up of stimulus money. Staff in supermarkets are already under pressure, with reduced numbers on the floor and increasing workloads. In other stores, staff are failing to meet sales quotas and are gradually being laid off.

To stretch the weather analogy to its limit, all of this is like a cloud that has passed the brink of precipitation. The droplets of rain now falling are the heralds of a coming economic deluge.

The RBA now admits that Australia will enter an economic recession this year, whereas there has been evidence that the Government’s bailouts have worked in reducing mortgage stress. This was probably not the intended effect of Kevin Rudd’s stimulus packages, but certainly a win for working Australians who, in their wisdom, put the cash in the bank instead of splurging it. However it is still remarkable that the RBA thinks Australia will sail through the global recession without many scratches and bruises. How do they think this will happen?

The Rudd “stimulus” money many received was arguably an unconstitutional act and is being challenged as such in the courts (a challenge which has since failed). It also appears that the money arises from foreign borrowings, such as from China. Although Australia is not engaged in a Cold War with China, genuine questions arise as to how this all impacts on the national interest, on security financially and militarily. More and more parallels with Gough Whitlam’s era are being used to place pressure on the current Government, but few of these relate to the probable real reasons for The Dismissal. It’s not likely that Kevin Rudd will be toppled any time soon, as far as any public information indicates. Time can only tell.

What could be expected, however, is a curtailing of “freebies” this year, followed by rising inflation over the next year or two. The shear enormity of money being thrown about in North America (expansion of the money supply from $850 billion to $4 trillion) cannot go unnoticed. It is inconceivable that this kind of desperate money-printing won’t result in hyperinflation in the US, with knock-on effects abroad. It could even spell the end of the US Dollar altogether, with louder and more direct statements supporting the abandonment of fiat currencies. This in turn should raise alarm bells with regard to the likely geopolitical fall out of America’s demise as an economic and political power. It won’t take long for America’s military to follow suit. Chess pieces will start moving all over the place, with potentially horrific effect.

How will all of this affect Australia?

It is quite possible that what is coming will surprise even the pessimists. Nobody in the Australian media is considering the ramifications of war breaking out. It already has in some ways. The rise of Internet based espionage should be taken as an important signal. The lines are being drawn as to who is becoming whose enemy on the international level. Other attacks have been so broad that the culprit will probably never be identified, nor the damage caused known. It’s a cluster of events whose timing is interesting, but there is likely to be much more activity in this regard than the public can ever be aware of. I guess one can only hope that so much information has been leaked to so many that nobody will have the confidence to attack anyone else, resulting in accidental peace.

The effect on Australia of North American and European financial turmoil has so far been quite mild. There are no major demonstrations, no big shifts in unemployment figures, no mass-defaults on mortgages. What has to be understood, however, is that the international economic crisis cannot end overnight. It will play itself out over years and will likely spill over into social and military conflict. The Australian Government cannot prop up businesses, households and banks for that long. It will have to flinch and let things go the way they are destined to. Soon, what we read in the newspapers about far away lands will become realities at home.

A short note today on the difference between the RBA’s comments on the stability and durability of the housing market and, well, reality:

The Reserve Bank said Australian banks had been able to concentrate on profitable and relatively safe domestic lending to households over the past decade. They had not lent heavily abroad, where risks are higher, and they had avoided exposure to securities, such as collateralised debt obligations, that have brought such heavy losses to other banks.

How can they pretend that Australian household incomes are immune from international events? The difference between foreclosures on Australian mortgages and those overseas is one of timing and not necessarily magnitude. Claiming that we will survive this worldwide depression like we survived the other, smaller recessions, is nothing more than a random statement. Nobody really knows that.

It’s no secret that the New Zealand economy is in a terrible recession, and everyone is aware of the economic collapse in Ireland, Iceland, Eastern Europe and, it appears, even the United Kingdom. It’s now official news that Australian wealth fell by as much as 38% over the past twelve months. Unemployment is already rising and there is no evidence to support the notion that the trend won’t continue.

If we separate opinion from fact in all of this, we can see that the RBA has plenty of opinion but not much fact behind its confidence in Australia’s real estate market survivability. At the very least, the RBA is tight-lipped on how it arrives at its optimism.

Our Government is playing a very dangerous game in doing so, and any assumption that China won’t want its pound of flesh in return would be foolish indeed. In a way, all this is a bit like taking out a mortgage to buy the kids a Playstation, a swimming pool, and some other expensive entertainment thingies, all in the face of impending unemployment. Hey, we might be lucky and not get unemployed!

Can this all be a reason to hope that real estate prices in Australia won’t fall? It cannot be, because ultimately, borrowed money has to be paid back and the artificial propping up of Australian living standards through foreign debt is not sustainable, even in the medium term, because economic resurgence has not yet occurred anywhere in the world. The stock market rally in the US is not to be taken seriously, as there is no fundamental reason behind it. Where are the glowing US trade figures? Where is the news of factories reopening, or of a jump in forward orders for commodities?

Australia is only in the early phase of the economic storm. Good economic news that is not based on indisputable fact should be considered to be nothing more than disinformation.

The Newcastle University index projects 15 per cent of the suburbs examined are at a significant risk of sliding into high levels of unemployment. … “Because of the reliance on particular type of industries; manufacturing, construction and those types of industries,”

It’s not unexpected. It is just a matter of time before unemployment hits Australia with people defaulting on mortgages and going back from being “owners” to “renters”. For most people, not a great deal changes in terms of their de facto serfdom. They go from renting from a bank to renting from a property investor. After all, only 34% of homes are owned out-right. It is a very ominous statistic indeed.

Soon will be the time when the cashed-up individuals who got out of the stock market before its crash will get rid of much of their spare money in buying up cheap houses throughout Melbourne and Sydney’s working class suburbs. Housing prices in these areas are set to fall sharply, as will rent (because the capacity to pay will be low).

There are other major changes taking place, with the previously highly paid mining workforce returning from mining towns in the western parts of Australia to the Eastern belt of cities. These people will also find themselves unable to find work. They will crowd out temporary residents from many areas of employment which will result in them returning to their countries of origin. The difference is that these people are more likely to be “cashed up” and are unlikely to be in the situation of defaulting on mortgages or being forced to rent. How this will affect housing demand or rental prices is uncertain, but it could turn out to be a buffer against a cataclysmic housing price collapse.

On balance, however, I would guess that, in poorer parts of big cities, housing prices will fall dramatically as the desire to live in those areas vanishes, dragging the market down as a whole. Many up-market areas will also suffer as businesses go to the wall. Again, not unexpected. Top-end real estate has always been the most volatile.

However, farming and the food production industry is an area whose produce is not experiencing any dip in demand. People still have to eat. It is in areas which service these needs where I would think that real estate prices won’t fall much at all. Country towns and regions where food processing takes place, one would think, should be relatively immune from what is otherwise an manufacturing and minerals export slump for Australia.